On November 13th 2019, the UC Administrative Professionals Network attended the Board of Regents Meeting at the UCSF Mission Bay Conference Center to speak out against the proposed 1.5% increase in employee pension contributions. We had a strong presence of UC employees and our Network, along with other groups, spoke during the public comments section of the meeting to deliver the message that this 1.5% pay cut for UC staff is unacceptable. The Board of Regents decided to postpone a possible vote on the employee pension contribution increase and instead to seek monies for the pension from the state legislature. The Regents set a date of July 2020 to revisit this topic, but we have yet to hear any news or updates about an increase to employee contributions.
This is a temporary victory, although we will need to stay vigilant about this issue, we made a huge impact! Our calls, emails, petitions, and major presence at the Board of Regents Meeting made a difference in the outcome (you can find a video of the members of our network addressing the Board of Regents here). For the first time, UC administrative professionals made our voices heard!
The UC Academic Senate also joined us in standing in opposition to the proposed 1.5% pay cut. In a letter to President Janet Napolitano, Dr. Kum-Kum Bhavnani, UCSB Professor and Chair of the UC Academic Council, said that increasing pension contributions “does not have a strong financial justification, would impose additional burdens on lower-paid employees, and undo the recent progress on faculty total remuneration,” adding that an “additional increase in contributions from non-represented employees (with the assumption that represented employees would have such increases negotiated into their contracts when they come up in several years) would create significant morale loss and ill will among employees.”
You can read the entire letter here.
In addition to the support from the UC Academic Senate, the coalition of labor unions representing UC staff also sent notice of their opposition to the UC Board of Regents.
WHY AN EMPLOYEE CONTRIBUTION INCREASE IS UNFAIR AND WILL ULTIMATELY HARM UC:
- UC finances are strong and growing, including the University of California Retirement Plan (UCRP), and there is no need for increasing employee contributions at this time.
- The increased pension contribution is a compensation issue. The Academic Senate Task Force on Investment and Retirement (TFIR) estimated that each one percent increase in employee contributions results in a 1.2 percent reduction in take-home pay. This is unacceptable for administrative professionals whose pay has fallen behind the private sector, similar universities, other UC work groups and the cost of living.
- The TFIR strongly recommends against increasing employee contributions because it will have a devastating effect on employee take-home pay. In the long run it will not save UC any money because it will be offset by an increase in compensation and will cause a loss of staff talent as compensation becomes even less competitive.
- The justifications for increasing employee contributions ignore the fact that the Regents and UC, not the employees, are responsible for the unfunded liability in the first place. The contribution holiday the regents voted for corresponded with UCRP funded status being cut in half (from ~160 percent funded to a low of ~80 percent funded). A report presented to the regents in September 2016 estimated that the plan would have been roughly 120 percent funded had the contribution holiday not taken place.
- The largest California pension system, CalPERS, has substantially higher employer contributions than UCRP. For CalPERS members in the State Miscellaneous category (which includes our Local 2010 members who are part of the CSU system), employers currently contribute 31 percent. Meanwhile, PEPRA Tier State Miscellaneous employees contribute 7.25% to CalPERS,  meaning most UC employees already shoulder a larger share of the Plan’s normal cost than many others in State service.
- Further employee contribution increases go against UCRS’ original stated intention of providing comparable benefits without asking employees to pay more than CalPERS.
- Since pension contributions reduce take-home pay, many prospective employees may look to other public employers that offer similar pension benefits with less impact on their take-home pay, putting UC at a competitive disadvantage.
- For employees close to retirement, scheduled increases in their retirement contributions could induce them to retire earlier than planned, exacerbating staffing issues.
- Any employee contribution increase will be paid for overwhelmingly by newer UC employees who did not benefit from the contribution holiday.
- UC Regents established the UC Retirement System (UCRS) in 1961 to provide for retirement for full-time UC employees. At the time the Regents asserted that UCRS could provide comparable benefits to what was then the precursor to CalPERS while costing the State less and not requiring employees to contribute more.
- The (UCRP) is funded by its investment returns and its employee and employer contributions. In 1990, the Plan announced a contribution holiday where neither UC nor member employees would contribute to the pension until contributions resumed on April 15, 2010. At the time the contribution holiday was announced, the plan was running surpluses of up to 161% and was 137% funded in November of 1990 when the Regents voted to suspend contributions.
- Over time, volatility in the market and particularly the 2008 financial crisis together with the lack of contributions eroded the Plan’s surplus and resulted in it being underfunded. The pension fell to 95% funded in 2009 and ultimately a low of 76% in 2013.
- When contributions on UCRP members’ gross pay resumed in 2010, most employees contributed 2% less $19 per month and UC contributed 4%,3 totals which gradually increased to the current 8% less $19 per month for 1976 Tier UCRP members and 7% for 2013/2016 Tier UCRP members on the employee side and 14% for UC (8% for the member plus 6% to cover the pension’s unfunded liability). Employee contributions higher for certain bargaining units.
- During the UC Regents Finance and Capital Strategies meeting on July 17, 2019, Action Item F4 proposed adjustments to UCRP’s actuarial assumptions and to increase UC’s contribution from 14% to 16% over 4 years. The need for this increase would be the result of adjusting the actuarial assumptions to account for a reduction in the expected investment return from 7.25% to 7%, an increase in projected lifespans of retirees, and a reduction in the expected inflation rate. These assumption changes would reduce the Plan’s funded status by ~5% and increase its normal cost by 1.8% of payroll.
- During discussion of the action item, Regent Makarechian, Finance and Capital Strategies Committee Chair, and other Regents argued that expected returns should be lowered to 6.75% based on UCRP’s previous 20-year return and that employees should also contribute more towards the Plan’s normal cost. They argued that increasing employee contributions was justified as a matter of fairness to other employees, that increasing employee lifespans were part of what was driving up the normal cost and creating a “windfall” for certain retirees, and that they shouldn’t be giving employees another contribution holiday. They tabled the vote until the September Regents meeting and asked that the Office of the President provide alternate scenarios that both further reduced the expected investment return and split the increase in contributions between the employees and UC.
- During the August 30th UCRS Advisory Board meeting, it was indicated that the plan that was going to be presented to the Regents in September would lower the expected return to 6.75% and increase employee contributions by 1.5% over 6 years. Ultimately any proposal to increase employee contributions was pulled from the agenda for the September meeting but there is still Action Item F4 that would change the actuarial assumptions and increase employer contributions from 14% to 17% over 6 years. The action item makes clear a possible proposal to increase employee contributions could appear in subsequent Regents meetings.
- During September 18-19 meeting, the committee and full Regents body approved revised Action Item F4 to raise employer contributions, change actuarial assumptions, and have UCOP bring options to increase employee contributions to the November 13-14 Regents meeting.
-  https://www.universityofcalifornia.edu/press-room/uc-investments-posts-strong-gains-endowment-824-percent
-  https://senate.universityofcalifornia.edu/_files/reports/rm-jn-ucrp-recommendations.pdf
-  https://regents.universityofcalifornia.edu/regmeet/sept10/j4.pdf
-  https://www.calpers.ca.gov/docs/circular-letters/2019/200-030-19.pdf
-  https://ucnet.universityofcalifornia.edu/compensation-and-benefits/retirement-benefits/ucrsab/docs/ucrsab-handbook-appdx-d-chronology.pdf
-  https://oac.cdlib.org/ark:/13030/hb8m3nb8x1/?brand=oac4
-  https://news.berkeley.edu/2010/04/01/ucrp/
-  https://regents.universityofcalifornia.edu/regmeet/sept10/j4.pdf
-  https://regents.universityofcalifornia.edu/regmeet/nov15/f10.pdf